The case of C. Abdul Shakur Saheb V. Arji Papa Rao[1] deals primarily with section 53 of the Transfer of Property Act. Section 53 states that any transaction of immovable property made with an intent to defeat or delay the interests of the creditors should be voidable at the instance of the creditor. This case inter alia puts more perspective on defining the scope and applicability of Section 53 of the act in cases where such a violation has occurred.

Facts:
The second defendant firm i.e. Hajee Abdul Kadir Saheb and Lala Batcha Sahib and Co. were responsible for operating businesses in several places notably Vizianagram, Bellary, Madras etc. in Skins and hides since 1941, when the partnership between the 3rd and 4th defendants was formed. Since 1947-1948, the firm was stated to have not been doing well and by that time had contracted huge volumes of debt, their business in Vizianagram had stopped, and the tannery business there providing losses.

Accordingly, the two partners entered into a deed of dissolution dated March 31, 1949, where it was agreed between the partners that the 3rd defendant i.e. Abdul Shakur Saheb would receive one item of property at Vaniyambadi valued at 20,000 while the suit tannery, estimated to have been of the same value to be the sole property of the 4th defendant who was deemed to be the "continuing partner" according to the deed. After the deed was executed, the 4th defendant entered into an agreement with the plaintiff for the sale of the suit property to him at a price of 19,000/- and later the sale deed was executed on May 20th, 1949 at the behest of both the defendants.

While so, the 1st defendant i.e. Arji Papa Rao was the creditor to the firm and the only contesting defendant filed a suit against the second defendant firm and defendants 3 and 4 for the recovery of a sum of Rs. 12,950 and obtained a decree for the same claimed with interests and costs on June 19th, 1951. Soon after filing the plaint, he obtained an order of attachment of the suit property which was made absolute by the passing of the decree, subject however to the claim petition which was filed by the plaintiff for raising the said attachment. The claim was dismissed by the Subordinate Judge which led to an appeal in the Trial Court.

Procedural History:
The Trial court accordingly upheld the contention of the plaintiff that the sale was real and fully supported by consideration. The Trial court negatived the contention of the 1st defendant that the sale was fraudulent and intended to defeat or delay the interest of the creditors under section 53 (1) of the Transfer of Property Act. The 1st defendant then filed for an appeal in the High Court where the decision of the Trial court was reversed and directions were given for the dismissal of the plaintiff's suit. Hence, an appeal was made by the plaintiff in the Supreme Court.

Issues

1. Whether the sale deed so executed was in fraud of the creditors and as such not binding on the first defendant and other creditors of the defendants 2 to 5?
2. Whether the sale deed executed with the plaintiff was a genuine transaction supported by consideration?
3. Whether if the transaction was found to be in fraud of the creditors, could the plaintiff claim to be the transferee in good faith and for consideration so as to claim the exemption in Sec. 53 of the Transfer of Property Act?
4. Whether if the debtors had other properties or assets of similar value which could meet the interests of the creditors, would Section 53 still apply?
    

Rule

Section 53 (1) of the Transfer of Property Act, 1882: Fraudulent transfer.

1. Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed.
   • Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration.
   • Nothing in this sub-section shall affect any law for the time being in force relating to insolvency.

A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor, shall be instituted on behalf of, or for the benefit of, all the creditors.
Analysis:
As mentioned earlier, the appellant (transferee/buyer of the property) has raised four important issues for appeal before the Supreme Court. All the claims have an underlying tone which tries to convey the good faith of the appellant while purchasing the property. Whereas the defendants claimed exactly contrary to this. There are two determining factors which are to be considered to come to a conclusion. These are stated below:

1. Whether the sale was a sham and a nominal one thus made in fraud of the creditors?
2. Whether the appellant was a bona fide purchaser for value?

Firstly, the court judicially distinguished between a sham sale and a nominal sale. It generally states that when a sale is made without the intention to transfer the title it is termed as 'nominal' and when a sale is real but voidable at the option of the creditors because the transfer is done with the intent to 'delay or defeat the creditors' as per sec.53 of TPA then it is known as a 'sham sale.'

Claiming that the sale was only intended to screen the property from the creditors, they argued that the transferee and the transferor were from the same community and that they are relatives therefore the sale is only make-believe but realistically still within the ambit of the original owner. However, the validity of the claim that they are relatives was dismissed through evidence. But the court translated the significance of being in the same community and being well-known to each other to the fact that the purchaser did not visit the property or enquire about it in the locality thus evading publicity and the news of the sale from reaching the creditors.

Although the transferred property is situated in Vizianagaram, the sale document was registered in Madras. The court interpreted this as a measure to maintain the secrecy of the sale. Both the SC and the HC agreed and believed that both the transferor and the purchaser had agents in Vizianagaram. Although both of them carried on their business in Madras then, they could have easily executed a Power of Attorney to trusted personnel in Vizianagaram to present the document for registration and enforce its execution, eliminating travel costs and other complications put forth in defence.

The next fact the court examines to determine the validity of the sale is the pressure exerted by various creditors on the transferors immediately prior to the sale of the property to the appellant. Even though the debts of other creditors were settled with the money received from such a sale the fact that the original owners were pressed by the creditors from the very beginning, even before the sale is well-established here. Therefore, obliviousness of the debt to the creditors before the transfer of property cannot be argued. Moreover, the transferors have not proved any purpose on their part for showcasing such urgency to sell the property. Hence the only reason which could be logically read into this act is the pressure exerted by the creditors. In the light of these facts, the transferors might be motivated by either of these two alternatives to do the sale:

1. In order to provide the creditors with the consideration or proceeds obtained from such sale.
2. A sale in order to convert the immovable property into cash so as to prevent the creditors from attaching the property in their suit of claim of the debt.

Since it is apparent that the original owners have not paid the creditors their impending debt it is only reasonable to infer that (2) is true in this case.

Another matter of relevance is the query on the transferee's good faith and bona fide intent. It is imperative to take note here when fraud on the part of the transferor is established as per sec.53(1), the burden is upon the transferee to prove that he falls within the exemption clause and that he needs to establish his unawareness of the intent of the creditors and that in his view the transaction was undertaken under all honesty and in the ordinary course of business. But in this case, the transferee has failed too convincingly do so. As established earlier since both the parties to the sale are from the same close, well-knit community and since both carried out business in close proximity, it is not absurd to infer that the purchaser was well acquainted with the original owner's financial situation.

Moreover, it is proved that the purchaser had access to the copy of the deed for dissolution of the firm where the debts amounting to two and a half lakhs (Rs. 2,50,000) have been mentioned. In light of more factors like the document being registered in Madras and the fact that he did not enquire about the property to shun publicity indicates the transferee's accomplice in keeping this issue a secret. The final nail was hammered by the court when it said that the transferee with his knowledge of the debt as disclosed by the recitals did not insist that the consideration paid by him to the transferor should be utilized for the discharge of the debts.

Here however we would like to contest the argument the court used, firstly, if we assume that the plaintiff did have knowledge of the financial embarrassments of the defendants would the onus be upon him to insist the defendants to utilize the said purchase amount for paying off their debts? In the case of Rajbari Bank V. Harshamukhi Sinha[2], the court had established that the mere fact that the transferee had some knowledge of the transferor being in financial embarrassment does not necessarily prove the absence of good faith.

In the aforementioned case, the transferee's good faith was established by assuming that the purchase was made by her under the assumption that the purchase would be used by the transferor to pay off his debts. Similarly in the present case, can it be determinatively said that it is the responsibility of the transferee to direct the transferor to use the money for the payment of debts as it could have been very well assumed that since the two belonged to the same community, the purchase made by the transferee would have been used by the transferor in payment of his debts. Therefore, who does the onus lie upon?

Lastly, there wasn't enough evidence to show that the debtors had other properties of similar value to the suit amount and the condition of "delaying" the creditors had already been fulfilled by the court, hence this argument was not taken into account.

Judgement:
The court therefore found the sale to be a fraudulent one, accordingly executed to defeat or delay the creditors as per provision of Section 53 of the Transfer of Property Act, 1882. It was also held that the plaintiff was in default since he had knowledge of the transferor's default yet still progressed with the sale hence proving mala fide intention on behalf of the plaintiff. The creditors could thereby claim the attachment of the suit property of the debtors.

Conclusion
Through this case, we understand the scope of Section 53 of the TPA Act and how wide its applicability is. Although we believe that the reasoning used for establishing good faith on behalf of the transferee seems to be bit inconclusive, the duty of the transferee is to pay his consideration which he duly did and it accordingly ends there.

It is however pertinent to note that the Judge in several instances had mentioned that if Defendant 4 was himself present during the inspection or Cross-examination during any part of the proceedings, a number of claims could have been dismissed by the court which were based on assumptions, especially the decision regarding the alternative properties which the debtors were assumed not to have held due to inconclusiveness of evidence. However, while considering the evidence in context with circumstances as a whole, it indicates the present conclusion.

As discussed above, at a glance sec.53 of TPA might seem a bit unfair and unjust considering how the motives and intent of an individual are taken into account while executing a sale. It might be considered to be absurd to take into consideration these factors for civil liability. Because it is not very often that a person is prosecuted while performing a lawful activity just because of improper motives. But it is imperative to understand that if these checks and balances are not placed the room for manipulation expands and this very issue will create a legal loophole.

This section is enacted as a security and guarantee for creditors. Although in truth a person should have full autonomy over the ownership of their property and what they deem best for it, this general exception in the form of section 53 exists on the basis of the paramount responsibility placed on law and justice to thereby prevent fraudulent transactions from occurring.[3]

End Notes:

1. C. Abdul Shukoor Saheb v. Arji Papa Rao [1962] AIR [1963] SC 1150
2. Rajbari Bank Ltd. V. Rani Harshamukhi Sinha [1946] AIR [1947] CAL HC 154